The Arbitration and Conciliation (Amendment) Bill, 2018: Unclogging the Arbitral Logjam.

[Soham Banerjee]

The author is a fourth-year student at GLC Mumbai. He may be reached at sohambanerjee.glc@gmail.com.

Ever since India moved into the top 100 in the World Bank’s Ease of Doing Business report, the general perception about our country steadily becoming investor-friendly has received a major fillip. The path to ensuring that India becomes a major industrial hub has been possible majorly through the sustained efforts of the government in policy reforms and formulations, something which was on display in full flow recently when the Union Cabinet approved the Arbitration and Conciliation (Amendment) Bill, 2018 (Bill).

It is a foregone conclusion that the principal deterrence behind investors not perceiving India as a major investment hub is the protracted dispute resolution mechanism currently in operation in the country. The clogged up judicial system coupled with the ineffective Alternate Dispute Resolution (ADR) mechanisms makes the resolution of disputes arising out of investments in the country a costly and expensive affair. This is why the recent Bill approved by the Union Cabinet in bringing about amendments to the Arbitration and Conciliation Act, 1996 (Act) serves as a much-needed intervention in the ills that have plagued the arbitral regime in India.

Proposed Amendments

The object and intent of the Bill makes it evident that the government is keen on establishing India as a major hub of ADR. The amendments to the 1996 Act, it is said, would “facilitate achieving the goal of improving institutional arbitration by establishing an independent body to lay down standards, make arbitration process more party friendly, cost effective and ensure timely disposal of arbitration cases.” The following are the primary amendments sought to be introduced via the passing of this Bill:

• Establishment of the Arbitration Council of India (ACI), a statutory body tasked with promoting and upholding institutional arbitrations in the country;
• Amendment to section 29A of the Act;
• Introduction of sections 42A and 42B in the Act; and
• Introduction of section 87 in the Act.

We shall deal with each of these amendments in greater detail hereon.

The Arbitration Council of India

The creation of the ACI is by far the most unique feature of this Bill. The Bill suggests the formation of a separate, independent and statutory body in the form of the ACI which shall be presided over by:

• a judge of the Supreme Court; or
• the Chief Justice or any other judge of the High Court; or
• any other eminent person, including an academician, apart from other government nominees.

The primary functions of the ACI include inter alia:

• grading arbitral institutions and accrediting arbitrators by laying down prescribed norms;
• initiating measures to promote arbitration, mediation, conciliation and other ADR Mechanisms;
• evolving policy guidelines and regulations which shall lay down uniform standards for the practice and propagation of ADR mechanisms in India;
• facilitating quick appointment of arbitrators through designated arbitral institutions by the Supreme Court or the High Court;
• clothing the Council with the function of maintaining an electronic depository of all arbitral awards rendered.

Amendment to Section 29A of the Act

Section 29A of the Act, introduced by the Arbitration and Conciliation (Amendment) Act, 2015, sought to impose a time limit of 12 months on the way arbitrations were to be conducted. The section mandated that an award should be passed within twelve months of the arbitrators entering reference.[1] The parties were, however, free by consent to extend the said time limit to 6 more months. The problem in the implementation of this section arose in the lapse of the mandate of the tribunal should the award not have been made within this 18-month period, subject to the court extending the said period before or after its lapse. Furthermore, the proviso to this section also empowered the courts to deduct the fee of the tribunal should the delay be attributable to the same and vested the courts with the power to substitute one or all the arbitrators on the tribunal. Therefore, merely in terms of broadening the scope of judicial interference in arbitral proceedings and destroying party autonomy, section 29A posed grave challenges to the independence of the arbitral regime in the country.

However, the Bill makes an honest effort to do away with the incongruencies introduced by section 29A of the amended Act. The operation of section 29A had made it difficult for arbitral tribunals to conclude proceedings within the prescribed time limit as the stage of pleadings and recording of evidence (wherever necessary) often made the rendering of the award within the prescribed time limit nugatory. The Bill seeks to counter the imbalance inherent in section 29A through the following two ways:

• initiating the 12-month cut-off period from the date of conclusion of pleadings of the parties as opposed to the date of the arbitrators entering upon reference; and
• excluding international arbitrations from the limited timeline of making the arbitral award.

Introduction of Sections 42A and 42B

A novel addition to the arbitral regime, the proposed sections 42A and 42B, seek to redress the lacunae left unaddressed by the amendments to the Act in 1996 and 2015. Section 42A enjoins upon the arbitrators and the arbitral institutions the duty to ensure confidentiality of the arbitral proceedings, save the award. Section 42B thereafter absolves the arbitrators from any suit or legal proceeding initiated against them in respect of any action they undertake in good faith during the arbitral proceedings. The intent, therefore, behind the incorporation of these two sections is clear:

• ensuring a speedy and efficient arbitral process where the arbitrators are free from any extraneous consideration while conducting the proceeding or rendering the award;
• ensuring a transparent and equitable arbitral process, bereft of any unintended breaches of information or data; and
• encouraging and promoting investors to resort to arbitration for the settlement of their disputes in an efficacious and time-bound manner.

Introduction of Section 87

Another significant change envisioned by the Bill is the removal of difficulties posed by the interpretation of section 26 of the 2015 Amendment Act. Section 26 reads as follows:

“26. Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

A major bone of contention pertaining to the provision was to do with the interpretation of the words ‘to’ and ‘in relation to’. For instance, if the reference to arbitration was entered into prior to the commencement of the 2015 Amendment Act (23.10.2015) and an application under section 34 of the Act came to be filed post such commencement, under what regime would the proceedings be governed? The anomaly becomes even more apparent with the flip-flop of the high courts in laying down a uniform proposition of law for the same.[2]

This is where the introduction of section 87 does away with a host of these difficulties brought about by the divergent interpretation of section 26. The proposed section 87 reads as follows:

“Unless parties agree otherwise the Amendment Act, 2015 shall not apply to the following:

• arbitral proceedings that have commenced prior to the Amendment Act, 2015 coming into force i.e. prior to 23.10.2015.
• court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act, 2015.”

Therefore, unless the parties agree implicitly or explicitly, the Amendment Act of 2015 shall not apply to arbitral proceedings commenced prior to the Act and to any proceeding in relation to such arbitration proceedings regardless of whether they have been instituted prior to or post the commencement of the Amendment Act.

It is pertinent to note that the Supreme Court recently has, in the case of BCCI v. Kochi Cricket Pvt. Ltd., held that section 26 bifurcates the proceedings into two categories- arbitration proceedings themselves, and court proceedings instituted in relation thereto. The Court then stated that:

“The scheme of Section 26 is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force.”

Accordingly, in every case where a section 34 application has been filed after the commencement of the Amendment Act, the same shall be governed by section 34 as amended. It will be interesting to see how the jurisprudence developed so far will be shaped once the Bill, in its present form, is passed.

Analysis

While the Bill makes a brave effort at plugging in the inter-generational loopholes of the arbitral regime in India, there are still critical areas that need immediate clarification. While the draft Bill attempts to theoretically iron out the creases inherent in the pith and substance of the Act, what it fails to account for are the practical difficulties in the implementation of arbitral practices in India. The following are certain thematic issues which merit further scrutiny:

• A precise standard for evaluating and comprehending the ACI’s role and standards would prevent potential excesses of privilege being committed by the said body in respect of accreditation and standardization of arbitral institutions in India;
• The fate of section 11 of the Act needs to be clarified. Since the Supreme Court or the High Court designates the institutions for appointment of arbitrators under the Bill, is the operation of Section 11 for appointment of court-mandated arbitrators deemed nugatory?
• As is evinced from the clarification issued to the divergent interpretation of section 26 of the Act, further clarity on key issues such as choosing a foreign seat for arbitration despite being bound by the Indian law could have merited the Cabinet’s attention.
• Furthermore, regarding the maintenance of confidentiality in arbitral proceedings, it is unclear whether this Bill has envisioned a situation where a section 34 or a section 37 application is filed before the court and the court requisitions the records of the arbitral proceedings. Can the confidentiality provision be pleaded in such an instance before the courts?

Therefore, even if the Bill tries its best to make the arbitral regime in India simple to practice and follow, there are certain incongruencies which still need to be considered.

[1] Section 29A (2) defines entering upon reference as the time at which all the arbitrators have received notice of their appointment.

[2] See New Tirupur Area Development Corporation Limited v. Hindustan Construction Co. Ltd., O.P. No. 931 of 2015; Tufan Chatterjee v. Rangan Dhar, AIR 2016 Cal 213; Rendezvous Sports World v. Board of Control for Cricket in India, 2016 SCC OnLine Bom 6064; Ardee Infrastructure Pvt. Ltd. v. Anuradha Bhatia, 2017 SCC OnLine Del 6402.